The conversion is reported on Form 8606, Nondeductible IRAs
Many commentators believe nondeductible IRAs
are a poor choice because the same funds invested outside the IRA would not generate taxable income until sold, could qualify for favorable capital gains treatment, and if held until death would receive a step-up in basis.
This is reported on Form 8606, Nondeductible IRAs
, with the taxpayer's Form 1040, U.
Nondeductible contributions will not be excluded from gross income as investment in the contract where the taxpayer is unable to document the nontaxable basis through the filing of Form 8606, Nondeductible IRAs
(Contributions, Distributions and Basis) for the year in which such nondeductible contributions were made and the year in which they were distributed.
The practical effect is that a taxpayer must recover any nontaxable amount (basis) ratably as distributions are received, by tracking basis on Form 8606, Nondeductible IRAs
They would consolidate traditional IRAs, nondeductible IRAs
and Roth IRAs into one streamlined type of account with rules similar to current law Roth IRAs.
However, we can divide these into two main categories, deductible IRAs and nondeductible IRAs
Some vehicles permit investors to make after-tax payments to tax-deferred accounts, such as non-deductible contributions to nondeductible IRAs
and to commercial annuities.
Save for Retirement accounts would replace existing IRAs, Roth IRAs, Nondeductible IRAs
, deferred executive compensation plans, and tax-free "inside buildup" of the cash value of life insurance and annuities.
Roth IRAs are nondeductible IRAs
that permit tax-free and penalty-free withdrawals of contributions and earnings--if the account is held for five years and you are over age 59.
RSAs would replace individual retirement accounts including Roth IRAs, and traditional and nondeductible IRAs
The process is complicated because the IRS insists that you cannot withdraw first from one IRA and then from another; instead deductible and nondeductible IRAs
must be treated as an aggregate, with taxes figured on proportionate amounts.